Plan C

Yesterday Mayor Nutter announced his doomsday budget plan (details to be found at City Paper). This is basically the budget PICA will make the city adopt if something does not change in Harrisburg soon (the state legislature is holding up a change in the sales tax law that the city is relying on to generate revenue for FY 10).

The cuts proposed are draconian. And it is easy to read them as hysterical. Ben Waxman has a post about this today at It's Our Money where he says:

I have seen a number of comments on this blog and others accusing the mayor of resorting to scare tactics. Here is the rationale: Mayor Nutter is intentionally laying off cops and firefighters to get people upset and put pressure on the state legislature. He could easily cut other areas-- health centers, libraries, and recreation programs-- to make up the budget deficit.

There is just one problem with that logic: it's completely wrong. Spending on public safety-- police, fire, and prisons-- dwarfs every other part of city government. About 29% of the city's $4 billion budget goes to these costs. If the city is forced to cut $700 million from the budget, most of it will have to come from the areas where the money is. There simply isn't enough cash in the other departments to make up the budget deficit.

Ben's right about the numbers. If we want a balanced budget absent the revenue raising schemes that require Harrisburg approval, we need to make a lot of these cuts. But the Mayor had a press conference because he wanted a chance to publicly enumerate the cots of cuts to the city. That was intended to get some phones ringing in state legislative offices.

And that's a good thing. All of these headlines will help get this process moving.

If there is any reason to be critical though it'd be the fact that the revenue agreement the Mayor and Council reached in the first place was predicated upon state action. It's not like we didn't know things would be tough in Harrisburg. The alternatives--raising property or wage taxes--came with other political risks that most members of Council and the Mayor weren't willing to take. But still.

Not quite right, Sean

It's not the home rule charter or the constitution that's the problem, it's a PA statute that is at the basis of the court case that prohibits a second budget.

That can be fixed by legislation....of course, from the same people who might not pass the sales tax plan.

The other alternative is to pass the taxes and go back into court. The PICA law, which was created after the early 60s court case I mentioned above, might (and I emphasize might) give us an opportunity to overturn that decision.

It's not illegal until the court says it is

And how quickly the city is denied the right to collect taxes depends upon what the courts do while they are making up their minds.

Assume Council passes new taxes and someone challenges them. I assume this goes to a lower court first, maybe Common Pleas. What does the judge do while the case is being heard? The judge could stop collection of the taxes or not. My guess is that no Common Pleas judge, elected by the ward leaders and the people of the city and up for a retention vote at some point in the future will deny the city the right to tax while the case is before him or her because a judge who makes that decision will be blamed for Plan C. And I expect that, for the same reason, he or she will ultimately rule for the city.

The it goes to the next level, presumably Commonwealth Court. And that takes some time. If the Common Pleas court has ruled for the city, I would expect hat this decision would hold until the Commonwealth Court has ruled.

Of course it may not work out this way. And I may be wrong about which courts deal with this issue. But if the sale tax is not passed, what alternative do we have except to try to go this route?

I'm just explaining what we might do if disaster comes

And I really don't see any harm in that.

I've been involved in providing some political support for a few court cases in the last few years, including the SEPTA transfer case; a previous SEPTA case, and the library case.

In all three circumstances, there was plenty of good reason for judges to come down on the other side. In fact, in one, and perhaps two of those cases, the best arguments or at least the most obvious precedent was on the other side. (I'm deliberately not being specific here for reasons I'm sure you can appreciate.)

But we won all three times. Why? Because the courts are entirely politicized in Philadelphia. And its not just in public cases. I lost a personal zoning case when the law was absolutely and totally clear that we should have won. But politics triumphed.

That's why Stan pointed out, in his initial post, that we can't be sure what would happen if Council passed alternate taxes.

Of course, no one wants to go down that road. It is totally imperative that the state legislature give the city the authority to raise the sales tax.

But if disaster happens we've got to be prepared to tell City Council to take other action. Council is already an all too passive and defeatist bunch all to ready to let someone else make decisions they don't want to have the responsibility of making. How many times in the last few years have we seen Council members say, "My hands are tied."

Your giving them excuses for inaction, Sean. I think that's a very dangerous thing.

And if you are worried about my thinking ahead giving the state legislature an out, then keep in mind that if they say the city can raise other taxes, we can demand that they empower us to do so. All it takes is a statute, not a constitutional amendment or charter change.

On your last point, I think you are right Sean. If plan C goes into effect, Bill Green's political career may be affected.

The difference is the level of responsibility

Voting to give us authority to raise the sales tax directly implicates legislators in our sales tax going up.

Voting to give us the authority to do a second budget is somewhat more indirect.

You may not think this much of a difference or will make much of a difference. But take it from someone who spent a bigh chunk of his first ten years as a political scientist studying legislatures that it is and it does.

I'm not missing it

I campaigned in support of a number of ideas to fix the property tax system in 2007, long before the Inquirer article.

If you want me to wring my hands and tear my clothes about the multiple difficulties we are facing here, Sean, consider it done.

We have an unbelievable mess and everyone needs to understand that it's not just the economic crash that has created it. It's thirty five years of broken politics in Philadelphia.

I think I've done more than most people in this city to drive that point home.

Organize now because prospects of future solutions are very dim

I don't think the problem with raising the sales tax is State Senators and Representatives worrying about bearing "responsibility" for raising it.

Legislators from outside the City aren't worried because their constituents largely won't pay it. Indeed, business interests from nearby municipalities may favor the hike, hoping shoppers will leave the City and patronize them.

Legislators from inside the City already support the sales tax (except Mike O'Brien, whom we should vote out of office next year).

No, I'd guess there are four reasons

1) General "I never support raising taxes ever" creeds among some Republicans

2) General uninformed belief among non-Philadelphians that Philly always wastes so much money, that Philly should not raise taxes until it makes more painful spending cuts

3) Legislators worried the State may yet turn to a sales tax hike of their own

4) Given the contentious down-to-the-wire State Budget negotiations, holding up the Philly sales tax hike gives Republicans some leverage over City Democrats who want the sales tax

The problem is: those inspired by the last two reasons are probably prone to one or both of the first two.

Those who never support tax hikes or who believe the City is a utopian Socialist free-for-all aren't going to support our getting a chance to write a new budget with new tax hikes.

So I think what we're looking at really is, pretty much, an either/or situation.

Either we get the sales tax now or we lose health centers, libraries, firehouses, and a good deal of public safety, among other atrocities.

We need to pass the sales tax now because passing any tax hike later is very very unlikely.

If Council can't act, why are they scheduling meetings?

Today's Inky on what happens if the state does not act on the sales tax by August 15:

"In that case, PICA gave the city 15 additional days to submit a new five-year budget plan, which would require Council members to formally meet to take action.

Toward that end, three special Council session have been scheduled. They are planned for Aug. 18, for the introduction of a budget amendment; Aug. 25, for a public hearing on the amendment; and Aug. 31, for a final vote on the legislation."

Does council just ratify a 5 year plan suggested by the Mayor? What if it doesn't do so? Can it propose higher taxes for the last four years? Can it propose borrowing this year on those higher taxes?

The Commonwealth withholds money from the City

if the City fails to pass and submit a financial plan on time to PICA.

According to Section 4.12 subsection b of the 1992 Agreement between PICA and the City:

The City and the Authority acknowledge that the Act provides that if the Authority certifies that the City is not in compliance with any Financial Plan in accordance with this Section 4.12, the Secretary of the Budget shall notify the City that such certification has been made and that each grant, loan, entitlement or payment to the City by the Commonwealth, or any of its agencies, of Commonwealth funds and payment to the City from the City Account, shall be suspended pending compliance with such Financial Plan.

Not submitting a financial plan on time is defined as one way of not being in compliance.

Ah, I thought the Mayor submitted a five year plan

I forgot Council votes on it.

Then what if Council votes to put new taxes in the five year plan and PICA approves it and Council votes those taxes. That might muddy the waters enough to keep taxes in place while the Courts deal with the mess. And then what if takes a whole year for the Supreme Court to issue a final ruling. Don't laugh. They've done stuff like that before.

Again, I'm not saying this is how I'd like things to go. The GA really needs to vote for the sales tax increase. But we should not give up and accept Plan C if it doesn't happen.

PICA would veto a budget with tax hikes it considered illegal

putting the City in noncompliance with the Agreement, and stopping State payments to the City.

That "solution" would create a fresh new set of disasters that would stay in place until the City submitted a budget like Plan C, that keeps expenditures in line with revenue without the tax hike, and includes payments the Commonwealth thinks the City has to make.

I'm not agreeing with this position, but it seems pretty obvious that that's the position we're in, so I'm pointing it out.

Something similar would happen too I'd imagine, if the City tried to stop payments on the Convention Center, or tried to borrow from sources PICA doesn't approve our borrowing from.

I agree that should the worst happen, and the City should be denied its needed tax hike, we all should work in the 15 days we have, to make sure the Doomsday Budget is as livable as possible.

But it's going to include a year of closed libraries, rec centers and likely health centers, reduced public safety and the reality of greater misery to the City's most vulnerable -- more people will suffer and die in the upcoming year.

That's a part of any budget without new revenue.

That's why even this supporter of belt-tightening and greater austerity, who has a great aversion to raising taxes on the nation's most heavily taxed city, sees very little silver lining if we don't get the sales tax.

Emergency sources of money

Keep in mind that if we don't get the sales tax, and can't raise other taxes, we have a very very serious problem, but for only one year. We can raise other taxes for the next four years in the five year plan.

That means that we can borrow on future tax revenues, as I pointed out above.

And there may be ways to muddle through this year without the drastic cutbacks the Mayor is talking about. The PWA is sitting on a $150 billion water rate stabilization fund on which the city can possibly borrow. We can delay payments for the stadia and convention center. We can delay payments to SEPTA, which has a 100 million in reserve. (Rolling the payments from June 30 to July 1 gets us into the next fiscal year.) We can raise fees on many things. (The legislation that eliminated our right to appeal zoning board decisions also authorized a wide range of fee increases.)

I'm glad that Mayor Nutter is making clear what Plan B (or C) means as a way to prod the GA into action. But Plan B is utterly unacceptable and the city should exhaust every alternative before implementing it.

where's the tea party?

PICA an unelected unaccountable body in charge of Philadelphia Tax dollars! So much for Philadelphians cry of no taxation without representation. No wonder the tea party was someplace else.

But it does make one wonder where today’s “teabaggers” are. These folks complain about elected officials raising taxes on the super wealthy but are completely silent when an unelected body taxes control of Philadelphia’s budget.

I just wish I could think of the appropriate Lewis Carroll quote.
Lance Haver

PICA is not just a messenger.

They have real power, not just advisory power. Here is what the agreement between the City and PICA says:

WHEREAS, in furtherance of the legislative intent of
the Act and the actions to be undertaken by the Authority
pursuant to the Act and this Agreement, the City, by Ordinance
(Bill No. 1437) of its City Council, approved by the Mayor on
June 12, 1991, has enacted exclusively for purposes of the
Authority a one and one-half percent (1½%) tax on wages,
salaries, commissions and other compensation earned by residents
of the City and on the net profits earned in businesses,
professions or other activities conducted by residents of the
City (the "Authority Tax");

Even if you don’t agree with me that people lives are more important then delaying bond payments for six months to a year, wouldn’t you agree that in a democracy people should be able to decide that? Why should an unelected body be allowed to control tax dollars without a court order?
Lance Haver


maybe philadelphians need to pay a visit to Mr. Pilleggi's personal residence and have a picket party like they did for jeffrey Lurie.

Sean, I am sorry I have not made my point clearer

You want to focus on the City’s deficit and budget, important points that progressives all too often ignore.
I am asking you to focus the expanding role of authorities in running our lives. At the risk of being pedantic, let me point out that more and more of the important budgeting issues are taken away from public bodies and placed in the hands of unelected authorities. (PHA, PAID, SEPTA,PPA,DVPA to name a few—right now as I write this the City’s main “quasi-public” development agency PIDC is in court saying they don’t have to follow the open records or sunshine laws that protect citizens)
Authorities have found ways of overcoming the City’s dept limit ration without giving citizens the right to decide. As an example, years ago when the City wanted to borrow above the debt limit to build veterans stadium, the bond issue was put on the ballot and a public discussion was had.
When it came time to build new stadiums, the proponents raised the money through authority debt and complicated lease/lease back agreements. The public was not allowed to decide if we wanted to pledge our tax dollars to stadiums. Despite the fact that courts have ruled that authorities do not have the right to collect taxes and authority bonds cannot be based on tax revenues, we have allowed authorities to do so.
Authorities do not guarantee the public the right to testify on decisions. I have been arrested for trying to speak at a PICA board meeting. When was the last time you read a news article or reviewed the minutes of an authority board deciding how to spend your tax dollars. Which bond counsels do they use? Which brokerage houses? Pin stripe patronage makes PPA look like the neighborhood corner store.
Solving the city’s budget problems is a very real concern. But we should also be concerned when we cede decisions to unelected unaccountable bodies that are taking the place of elected governments.
Thank you for considering my point of view, and at least on this topic I will stop typing and try and understand others.
Lance Haver

I don't think there was a council vote for Plan B

The Inky reported a week or so ago that it was not approved. Further cuts have been left up to the Mayor.

The useful role PICA could play

So PICA has been looking at what would happen in Plan B goes into effect? And wonders how we can function with 480 fewer police officers.

PICA's most important mission is to protect the revenue streams that service their bonds. That usually means focusing on the city budget. But maybe PICA can look at its mission a little different right now.

Perhaps it needs to stand up right now, very loudly, and say we can't function with these kind of reductions. It needs to say that the city would be so harmed by the reduction in services that the all-to-meagre advances of the last ten years would be reversed. It needs to say that, as a result, the city could well enter a prolonged depression so severe that payback of the PICA bonds would be threatened.

Maybe that would help wake up the General Assembly.

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